Trump should scrap his plan to make bank customers prove citizenship

• Key insight: An executive order requiring banks to verify the citizenship of their account holders would be incredibly burdensome for banks. It would also result in the "debanking" of untold numbers of Americans.
• What's at stake: Requiring additional checks for citizenship will debank millions of Americans who don't possess the documents necessary to prove their citizenship, or whose name or address conflicts with their most recent paperwork.
• Supporting data: The 10 states with the lowest passport rates (37% or below) all voted for Trump the last three elections.

We don't agree with the Trump administration on much, but we do agree that people should not be "debanked" for political reasons. That is why reports of an executive order to require banks to verify customers' citizenship are alarming. It is hard to think of a policy that would debank more Americans, particularly Republicans, while doing little to prevent the use of the banking system for money-laundering and fraud scams. The Trump administration has said its deregulation is attacking costly regulation that provides little benefit. Then it should start by killing this idea.

Requiring additional checks for citizenship will debank our millions of Americans who don't possess the documents necessary to prove citizenship, or whose name or address conflicts with their most recent paperwork. How do you prove your citizenship? Only half of Americans have passports. Passports are quite unevenly distributed across America: Eight out of 10 New Yorkers have one, but only two out of 10 West Virginians do. Ironically, the 10 states with the lowest passport rates (37% or below) all voted for Trump the last three elections. Hard to square with the accusations of political debanking against Republicans that one of us heard as a consistent message when testifying before Congress on the issue last year.

Do you have your birth certificate handy? Research shows that one out of 10 Americans do not, with nearly 4 million people reporting theirs had been lost, stolen or destroyed. Does your current name match your birth certificate? Roughly 30% of adults have changed their name, with nearly two-thirds of married women reporting they have. Trump carried married women by five points in the last election.

Others who may have trouble meeting these requirements are college students whose identification states their home address as different than that of their university housing; older Americans who have let their passports lapse, changed addresses or lost their birth certificates; and active members of the military who frequently relocate. (As many reports of ICE agents deporting veterans remind us, you do not have to be a citizen to serve).

Now consider the consequences of this regulation on small banks. When one of us was Illinois banking commissioner, they were responsible for the oversight of over 200 state-chartered banks — the most charters of any state in the country. Many were as small as $10 million in assets, but were able to compete by focusing on areas the big banks overlook. Examples include a community bank in Chicago's Chinatown with staff that speak multiple foreign languages, and know that speaking another language doesn't necessarily mean you are not a U.S. citizen. Approximately 10% of American citizens live in a home where a language other than English is spoken. There are agriculture banks catering to towns that both large banks and farm credit have overlooked, and mutual banks for manufacturing and packing plant workers, both of whom likely have disproportionate membership that would struggle to prove citizenship. Many community financial institutions would be impacted negatively by this possible executive order. The resulting fallout would weaken the very heart of our financial system, debanking hardworking Americans and slowing the economy, at a cost more than likely borne by Trump's own supporters.

Treasury Department

Experts celebrate White House reversal on bank citizenship EO

The reported reversal comes after the industry worried verifying citizenship would strain banks and push customers out of the system.

By Ebrima Santos Sanneh

March 20

The regulatory burden for those who can comply is significant. Will every American have to go to their bank with their passport or birth certificate, stand in line and give out this sensitive data to their teller. Where will banks store this data securely? How many hours will regulators and banks spend proving compliance? The new regulatory costs from this regime will be severe. Trump's earlier executive order required a cost benefit test for new regulation. We'd love to see the math behind this one, as we struggle to see the marginal benefits given the existing robust and expensive anti-money-laundering and know-your-customer regimes banks are already forced to comply with.

Recent reports that the Trump administration may be scaling back this proposal to only focus on new accounts hardly fixes the problem. One reason people switch bank accounts is when they move, the precise time it becomes more difficult to prove your location without a new driver's license, or proof of address. Further, people switch banks to find better deals on interest rates, lower fees and better services.

For banks, combating fraud, costly know-your-customer regulations and marketing make customer acquisition expensive. Policymakers should be making it easier for both consumers and bankers to compete for new accounts, not enacting new regulations that will freeze people at their current banks.

In our national history we find the lessons from past experiments that tried to weaponize banking against marginalized groups, such as recent immigrants. In the past, policies have been enacted to discourage foreign language banks, increase identification requirements and restrict remittances. The lesson from all of these past policies is that such unnecessary restrictions do not simply impact the community being targeted, but hurt America as a whole.